Qualcomm's profit hurt by competition from China

SAN JOSE, Calif.—Fabless communications chip giant Qualcomm Inc. Wednesday (April 24) raised its sales target for fiscal 2013 after reporting another increase in sales for the quarter ended March 31. The company did report a decline in profit for its fiscal second quarter.

Ian Ing, an analyst with Lazard Capital Markets, said Qualcomm provided a number of positive guidance metrics, but that the company's profit—which fell short of some analysts' estimates—likely disappointed some investors. "We believe this reflects intense China competition, a likely new TSMC investment cycle, and RF360 investments with little initial payback," Ing wrote in a report circulated early Friday.

Ing said Qualcomm's investment efforts to raise the "table stakes" are a long-term positive for industry consolidation and said he expects Qualcomm to have a stronger second half of 2013 with a robust pipeline of products in the works from top OEMs across smartphones, tablets and new device categories.

Lazard maintains a "buy" rating on Qualcomm's stock and a price target of $29. Qualcomm's stock traded at about $62.41 late Thursday, down about 5 percent from Wednesday's close.

Qualcomm (San Diego) reported fiscal second quarter sales of $6.12 billion, up 2 percent from the previous quarter and up 24 percent from the year-ago quarter. The company reported a net income for the quarter of $.187 billion, down 2 percent sequentially and down 16 percent year-over-year.

Paul Jacobs, Qualcomm's chairman and CEO, said the company was pleased to report another strong quarter. The rapid increase in smartphone adoption that is driving Qualcomm's success shows no sign of letting up, Jacobs said.

Citing a forecast by market research firm Gartner Inc., Jacobs said about 700 million smartphones were sold in 2012, up 44 percent from 2011. Gartner estimates that smartphone sales will increase about 20 percent in 2013, Jacobs said.

"Smartphones have become more than just a technology product, empowering people to connect and interact with the world like never before," Jacobs said. "And we’re working to deliver continuous improvements to this user experience through our investments in industry leading innovations in smartphone technologies, including the CPU, the GPU, multimedia subsystem sensors, displays, connectivity, and of course last but not least the modem."

Qualcomm said it expects sales for the current fiscal quarter, which closes at the end of June, to be between $5.8 billion and $6.3 billion, which would be an improvement of 25 to 36 percent compared to the year-ago quarter. The company said it now expects sales for the fiscal year to be between $24 billion and $25 billion, up 26to 31 percent compared with fiscal 2012. Qualcomm previously forecast that sales for the year would be between $23.4 billion and $24.4 billion.

Price is one crucial element to profit. Another is cost.
If you have any contact from within Qualcomm, see if you can get a rough quote of their Fab cycle time from their foundries. You'll be amazed!!!
Qualcomm sure has great products. But without their pattern loyalty income, I doubt the chipset is make the level of profit it should to stay competitive in long term. Qualcomm needs to sort out issues in their supply chain operations.

I think most are still underestimating the cost pressure Mediatek, Rockchip, Allwinner and etc. are going to bring to the smartphone and tablet computing market.
Market for these post pc devices will not play out like pc's (where a dominate vendor like Intel can charge $ 100-200 for a CPU). Margins will be brutal.
This trend will have Important ramifications for entire semiconductor market.